Cite as: Keith M. Lundin, Lundin On Chapter 13, § 125.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
Because an income deduction order implements a proposed or confirmed plan, modification or suspension of an income deduction order typically also involves modification of the underlying plan. For example, if a month of severe weather leaves the debtor short of money to pay utilities, a partial suspension of the income deduction order will help pay the gas bill but will interrupt funding the plan. If the debtor changes jobs and disposable income is reduced, modification of the income deduction order necessarily includes modification of the plan to reflect that less money is available to pay creditors. Suspension of an income deduction order should thus be analyzed as a plan modification under § 1323 if before confirmation1 or under § 1329 if after confirmation.2
There are many reasons why debtors need to suspend the income deduction order. Suspensions are common to allow the debtor to make extraordinary repairs to a car, to pay unexpected medical bills and to cover maternity leave. If the debtor is fired, laid off or quits a job, it may take weeks or months before the debtor has income sufficient to resume funding the plan. The damage done in the interim may not be beyond repair, but absent court permission to suspend payments, the plan will be in default and at risk for conversion, dismissal or relief from the stay. When the debtor is temporarily unable to fully fund the plan, the best defense to a motion for relief from the stay, conversion or dismissal is a motion to modify the plan to suspend (in whole or partially) the income deduction order for the period during which payments have been missed and to cure the default in some manner during the months of the plan remaining.
The procedure for suspension of an income deduction order varies. In some courts, the debtor gives notice to all creditors and an opportunity to object, providing in the notice the period of time for which payments will be suspended and explaining the effect of the proposed suspension on creditors. In the absence of a timely written objection, the suspension is allowed without a hearing and the plan continues as modified. In other jurisdictions, a request to suspend an income deduction order is set for a hearing on notice to some or all creditors, and the debtor must put on evidence to justify the suspension. Often there will be no creditor opposition if the proposed suspension is short and caused by a temporary condition or circumstance.
Secured claim holders are most at risk in a suspension of the income deduction order because usually it means they will not receive their prescribed monthly payments through the plan. Objection to a suspension request by a secured claim holder is appropriate if the debtor has not coupled the suspension request with some indication how the lost payments will be restored after the suspension. Obviously, any extended suspension or modification of the income deduction order puts at risk any secured claim holder with depreciating collateral. Because suspension or modification of the income deduction order is a modification of the confirmed plan, secured claim holders have all of the usual rights to oppose any modification that would impair collateral. For example, a request to modify or suspend the income deduction order after confirmation is objectionable if a secured claim holder’s collateral will depreciate more quickly than the secured claim holder will receive payments under the modified plan.3
A suspicious creditor should check the trustee’s records to determine whether the suspension will push the plan beyond the period allowed in the original confirmation order. If the confirmed plan was to last 60 months, a suspension of the income deduction order would not be permissible if it extends the plan beyond 60 months: A suspension of the income deduction order is a modification of the plan; a modification of the plan under § 1329 must comply with the maximum five-year limitation in § 1322(d).4 If the confirmed plan called for 36 months and suspension of the income deduction order will extend the plan beyond 36 months, the debtor has the burden of proving “cause” for the modification.5
Bankruptcy Rule 2002(a)(6) requires 20 days’ notice to all creditors of the time fixed to accept or reject a proposed modification of a plan. Because modification or suspension of the income deduction order almost always requires modification of the plan, 20 days’ notice of the proposed suspension must be given to all creditors, unless the court orders otherwise.
Suspension of an income deduction order can be confusing to the employer. For many employers, the original income deduction order required separate processing of the debtor’s paycheck to ensure the appropriate deduction was made and remitted to the Chapter 13 trustee’s office. An order suspending an income deduction order creates a confusing on-again, off-again, on-again for the employer that can be particularly complicated if part of the plan payment continues and then the full deduction resumes at a different rate. Debtor’s counsel should at least write the employer, explaining the suspension and detailing when the income deduction recommences and in what amount.
1 See discussion beginning at § 114.1 Timing, Procedure and Form.
3 See § 74.12 Lien Retention before BAPCPA, § 74.13 Lien Retention after BAPCPA, Including in No-Discharge Cases, § 126.2 Application of Tests for Confirmation and § 127.11 To Extend or Reduce the Time for Payments.
5 See 11 U.S.C. § 1322(d), applicable at modification after confirmation because of 11 U.S.C. § 1329(b)(1).